EN Case No COMP/M.2192 - 3* SMITHKLINE BEECHAM / BLOCK DRUG Only the English text is available and authentic. REGULATION (EEC) No 4064/89 MERGER PROCEDURE Article 6(1)(b) NON-OPPOSITION Date: 11/01/2001 Also available in the CELEX database Document No 301M2192 Office for Official Publications of the European Communities L-2985 Luxembourg COMMISSION OF THE EUROPEAN COMMUNITIES Brussels, 11.01.2001 SG(2000)D/285020 In the published version of this decision, some PUBLIC VERSION information has been omitted pursuant to Article 17(2) of Council Regulation (EEC) No 4064/89 concerning non-disclosure of business secrets and other confidential information. The omissions are MERGER PROCEDURE shown thus […]. Where possible the information ARTICLE 6(1)(b) DECISION omitted has been replaced by ranges of figures or a general description. To the notifying party Dear Sir/Madam, Subject: Case No COMP/M.2192 – SmithKline Beecham/Block Drug Notification of 17.11.2000 pursuant to Article 4 of Council Regulation No 4064/89 1. On 17 November, the Commission received a notification of a proposed concentration pursuant to Article 4 of Council Regulation (EEC) No 4064/89 (“the Merger Regulation”), by which the UK company, SmithKline Beecham plc (“SB”) notified its intention to acquire sole control over the US company, Block Drug Company Inc. (“Block Drug”), through purchase of shares. 2. Following examination of the notification, the Commission has concluded that the notified operation falls within the scope of the said Council Regulation and does not raise serious doubts as to its compatibility with the common market and the EEA agreement. I. THE PARTIES AND THE OPERATION 3. SB is a multinational company involved in the research, development, manufacture and marketing of pharmaceuticals, vaccines, over-the-counter medicines and health-related Rue de la Loi 200, B-1049 Bruxelles/Wetstraat 200, B-1049 Brussel - Belgium Telephone: exchange 299.11.11 Telex: COMEU B 21877. Telegraphic address: COMEUR Brussels. consumer products. The merger of SB with Glaxo Wellcome merger was approved by the Commission on 8 May 20001. 4. Block Drug is mainly active in oral healthcare, and health and beauty care. It generates some 40% of its sales in the US and another 40% in Europe. Block Drug is present under the name of Stafford-Miller in several EEA countries. 5. The operation will be carried out through the acquisition by SB of all the outstanding stock, and thus sole control, of Block Drug. II. CONCENTRATION OF A COMMUNITY DIMENSION 6. The proposed operation constitutes a concentration within the meaning of Article 3.1.b. of the Merger Regulation. 7. The undertakings concerned have a combined aggregate world-wide turnover of more than €5 billion (SB, […] million; Block Drug, […] million). Each of them has a Community-wide turnover in excess of €250 million (SB […] million; Block Drug, […] million), and they do not achieve more than two-thirds of their aggregate Community-wide turnover within one and the same Member State. The notified operation, therefore, has a Community-wide dimension. III. RELEVANT MARKETS A. Relevant Product Markets i) Toothpaste 8. Both SB and Block Drug are active in toothpaste across the EEA, SB mainly with its Macleans, Aquafresh, Odol, Iodosan, and Binaca brands, and Block Drug mainly with its Sensodyne brand. Toothpaste is manufactured and sold in a number of product variants, ranging from the basic traditional regular/family toothpaste at one extreme of the spectrum, to the most recent innovative “whitening” and “sensitive” variants at the other extreme. Within the spectrum, and as a result of a history of continuous innovation in the sector, there are several other toothpaste variants which, like “whitening” and “sensitive”, have particular attributes intended to provide specific benefits (e.g. “tartar control”, “bicarbonate of soda”, “smokers”) to individual consumers. One of the more popular innovative products is the “total care” variant, which incorporates in one toothpaste several attributes, so as to produce a combination of the benefits that are most relevant to the consumer. Similarly, the “sensitive” variant, which originally had as its primary attribute its therapeutic benefits for consumers who suffer from sensitivity to hot, cold, and sweet, food and drink, now, in its most innovative form, includes “whitening” among its attributes, thus broadening the set of benefits it offers to users, whose demands have grown alongside product innovation. 9. From the demand side, the Commission investigation in this case has shown that consumers’ choice of toothpaste is influenced not only by their individual needs, but can also be influenced by overall family needs, which may lead to the choice of a “total 1 COMP/M.1846 – Glaxo Wellcome/SmithKline Beecham 2 care” product. In any case, consumers adapt over time to changes both in their own needs and in the range of products on offer. While prices vary across the spectrum, with the regular/family paste at the lower end of the range, and “whitening” and “sensitivity” products tending to occupy the upper end, and “total care” the in-between, the market investigation has confirmed a low price sensitivity among toothpaste consumers in general, as these base their choice primarily on the benefits attributed to the particular variants, in relation to their specific or overall needs. 10. From the supply side, the Commission’s investigation broadly confirmed SB’s contention that manufacturers can change production between the different variants with relative industrial and financial ease: production facilities are essentially the same, and almost all variants have a certain number of active ingredients in common; the time needed for production changes is not significant, nor are there significant additional financial costs. Indeed, the main toothpaste producers, including some retailer brands (e.g. in the UK), have gradually added the different innovative variants under their particular umbrella brand names, and some (e.g. SB, Colgate, Unilever, Gaba, Sara Lee, to varying degrees) have extended their product range to include the “sensitive” variant, which originally enjoyed a somewhat special status, due to its therapeutic attributes and image, and its historic distribution through pharmacies. However, with time this “sensitive” variant has been innovated to include more “mainstream” attributes (e.g. Block Drug’s “Sensodyne” whitening product), and its distribution has been extended to include grocery retailers, with this type of outlet being significantly more important than pharmacies as a point of sale in several EEA countries. 11. Given all the above demand-side and supply-side factors, the Commission has retained an overall toothpaste market for the purposes of its competitive assessment in this case. ii) Toothbrushes 12. Both SB and Block Drug also market various brands of toothbrushes, of which the most important are: for SB, Aquafresh, Binaca, Dr Best, Iodosan, Macleans; and for Block Drug, Sensodyne and Parodontax, apart from character children’s brushes. 13. SB considers the relevant product market for manual toothbrushes as separate to powered toothbrushes (i.e. electric and battery-driven toothbrushes). It is to be noted that there would be no overlap, in any case, in powered toothbrushes, as Block Drug does not have this type of activity. 14. The Commission’s investigation has shown that third parties agree with the above distinction between manual and powered toothbrushes, as these products satisfy different customer needs and are different in their use. The exact market definition can, however, be left open, as the operation would not lead to the creation or strengthening of a dominant position on any of the alternative market definitions. 3 iii) Mouthwash and Mouth Infection Treatments 15. Mouthwashes are liquids designed to be rinsed or gargled around the mouth, usually after brushing. SB submits that there are two distinct types which are not interchangeable: a) Cosmetic mouthwashes 16. Cosmetic mouthwashes are mainly used to freshen the breath and mouth and can be used on a daily basis. The majority are sold in grocery outlets and the marketing is aimed at consumers. The parties’ brands of cosmetic mouthwash are: SB, Odol, Iodosan, Synthol, Mouthguard, and Macleans; and Block Drug, Corega and Sensodyne. b) Mouth infection treatments 17. Mouth infection treatment products are used for the treatment of specific medical problems such as mouth ulcers, gingivitis and throat infections. They should be used only for a short period and are invariably licensed OTC medicines. Marketing is directed towards the dental profession. The parties market the following brands: SB, Corsodyl, and Block Drug, Chlorhexamed. 18. The Commission’s investigation has shown that third parties also consider cosmetic mouthwashes and mouth infection treatments as two distinct markets, due to their differences, mainly in terms of ingredients, use, period of use and marketing. iv) Acid Control / Heartburn Treatment Products 19. Heartburn is a burning feeling caused by stomach acid regurgitating into the oesophagus. A muscular valve, called the lower oesophageal sphincter, keeps stomach acid in the stomach. But if the lower oesophageal sphincter opens too often, or does not close tightly enough, stomach acid can seep into the oesophagus and cause a burning sensation. 20. Both parties manufacture and market products to remedy acid control and heartburn: SB’s products are Tums, Philips Milk of Magnesia, Andrews